The owners of Insight met with their MassMutual financial professional, who suggested an executive bonus (EB) arrangement. After the meeting, Insight decides to implement an EB arrangement for both Jim and Sheila. Under this arrangement, the business will be the payor on the whole life insurance policies for both key account managers. The policies will be subject to normal financial and medical underwriting requirements. The premiums for each policy will be $10,000 per year. Jim and Sheila will be the owners of their respective policies and name their own beneficiaries. Insight will not have any interest in either policy. Since Jim and Sheila are both in the 30% tax bracket, they will each owe an additional $3,000 in income taxes on the $10,000 of additional income bonused to them. In a double bonus arrangement, Insight would bonus both of them $14,286 ($10,000/1-.30) so they would net $10,000, which equals the annual policy premium due. In turn, Insight, will get a corresponding deduction if the the total compensation to each employee is reasonable. This means Jim and Sheila will each have permanent life insurance protection and the opportunity to build cash value within the policy over time that can be used for any purpose, including supplemental retirement income.¹ By implementing an EB arrangement, Insight can reward Jim and Sheila with an additional benefit over and above the business's standard benefit package. There are additional benefits to the business that include an immediate income tax deduction.

Through the EB arrangement, Jim and Sheila gain income protection and a way to supplement their retirement. They will own the policy and enjoy all of the benefits of policy ownership including naming a beneficiary, a tax-free death benefit, and creditor protection from Insight’s creditors and possibly their own creditors (depending on state law). If Jim or Sheila are no longer employed by Insight, Insight will no longer pay the premiums, and they will need to manage their own policies.